Cells interact through molecules expressed at their surfaces, or via molecules secreted into their matrix and environment. Such interactions are crucial during development for the proper spatial location of the many cell fate specifications that occur. How this order is achieved is a major question in developmental biology and is important for the understanding of developmental diseases including cancer. The fruitfly Drosophila melanogaster is useful for investigation of cell interactions because its facile genetics readily permits identification and analysis of genes involved in cell to cell signaling. A number of mutations affect development of the Drosophila retina. The spatial and temporal order of retinal differentiation are particularly suited to developmental analysis. The first retinal cell type to differentiate is the R8 class of photoreceptor neurons, which in turn recruit thirteen other cell types to each ommatidial cluster unit of the insect compound eye). The overall pathway of R8 photoreceptor cell determination serves as a model for neurogenesis and the development of many other tissues in vertebrates and invertebrates, which all use similar genes. The overall pathway of R8 photoreceptor cell fate specification has been elucidated and further studies will resolve the molecular mechanisms of the critical conserved steps. A major goal is to elucidate the processes that lead to differential activation of the transmembrane receptor protein Notch in cells in the retinal primordium. This will be accomplished through genetic and developmental studies of altered forms of Notch and its ligands, as well as biochemical analyses in cultured cells. Further studies will seek to resolve the distinction between differentiation-promoting and differentiating-inhibiting roles of Notch signaling, and how R8 photoreceptor determination is modified by a receptor tyrosine- kinase, the Drosophila EGF receptor homologue. These studies address the function of two signaling pathways that regulate differentiation in an exceedingly wide range of tissues and organisms, and have been implicated in developmental defects in mammals and are associated with numerous cancers. They will yield information about normal regulatory mechanisms that are likely to be widely conserved; the posttranslational regulatory aspects are a particularly useful starting point for rational drug design.